FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-6233
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1st SOURCE CORPORATION
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(Exact name of registrant as specified in its charter)
INDIANA 35-1068133
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Michigan Street South Bend, Indiana 46601
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(Address of principal executive offices) (Zip Code)
(219) 235-2702
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding as of September 30, 2000 -
19,724,582 shares.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Consolidated statements of financial condition -- 3
September 30, 2000, and December 31, 1999
Consolidated statements of income -- 4
three months and nine months ended September 30, 2000 and 1999
Consolidated statements of cash flows -- 5
nine months ended September 30, 2000 and 1999
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II.OTHER INFORMATION 14
SIGNATURES 15
- 2 -
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands)
September 30, December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks .......................... $ 125,547 $ 101,911
Federal funds sold and
interest bearing deposits with other banks ..... 7,239 1,399
Investment securities:
Securities available-for-sale, at fair value
(amortized cost of $487,398 and $475,390
at September 30, 2000 and December 31, 1999).. 484,351 470,040
Securities held-to-maturity, at amortized cost
(fair value of $63,714 and $78,462 at
September 30, 2000 and December 31, 1999) .... 62,748 77,190
----------- -----------
Total Investment Securities ...................... 547,099 547,230
Loans - net of unearned discount ................. 2,272,574 2,063,189
Reserve for loan losses ........................ (42,544) (40,210)
----------- -----------
Net Loans ........................................ 2,230,030 2,022,979
Equipment owned under operating leases,
net of accumulated depreciation 82,150 65,956
Premises and equipment,
net of accumulated depreciation ............... 33,324 33,745
Other assets ..................................... 108,491 99,725
----------- -----------
Total Assets ..................................... $ 3,133,880 $ 2,872,945
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing ............................ $ 307,388 $ 268,825
Interest bearing ............................... 2,139,352 1,858,627
----------- -----------
Total Deposits ................................... 2,446,740 2,127,452
Federal funds purchased and securities
sold under agreements to repurchase ............ 177,916 263,253
Other short-term borrowings ...................... 139,759 146,489
Other liabilities ................................ 51,754 40,007
Long-term debt ................................... 12,123 12,174
----------- -----------
Total Liabilities ................................ 2,828,292 2,589,375
Guaranteed preferred beneficial interests
in 1st Source's subordinated debentures ........ 44,750 44,750
Shareholders' equity:
Common stock-no par value ...................... 7,227 6,883
Capital surplus ................................ 195,197 179,905
Retained earnings .............................. 72,515 68,309
Less cost of common stock in treasury .......... (15,059) (14,382)
Net unrealized appreciation (depreciation) of
securities available-for-sale ................ 958 (1,895)
----------- -----------
Total Shareholders' Equity ....................... 260,838 238,820
----------- -----------
Total Liabilities and Shareholders' Equity ....... $ 3,133,880 $ 2,872,945
=========== ===========
The accompanying notes are a part of the consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ----------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees ...................................... $ 53,133 $ 43,813 $ 149,558 $ 127,393
Investment securities:
Taxable ................................................ 5,696 4,763 16,149 14,713
Tax-exempt ............................................. 2,020 1,993 6,014 5,888
Other .................................................. 281 29 523 374
------------ ------------ ------------ ------------
Total Interest Income ....................................... 61,130 50,598 172,244 148,368
Interest Expense:
Deposits ................................................. 29,243 20,483 78,928 62,954
Short-term borrowings .................................... 5,362 4,273 14,659 10,756
Long-term debt ........................................... 225 216 670 670
------------ ------------ ------------ ------------
Total Interest Expense ...................................... 34,830 24,972 94,257 74,380
------------ ------------ ------------ ------------
Net Interest Income ......................................... 26,300 25,626 77,987 73,988
Provision for loan losses ................................... 1,292 2,232 9,888 4,968
------------ ------------ ------------ ------------
Net Interest Income After
Provision for Loan Losses ................................ 25,008 23,394 68,099 69,020
Noninterest Income:
Trust fees ............................................... 2,315 2,158 7,145 6,726
Service charges on deposit accounts ...................... 1,984 1,818 5,708 5,054
Loan servicing and sale income ........................... 3,632 4,932 15,459 14,410
Equipment rental income .................................. 5,810 4,846 14,913 12,349
Other income ............................................. 2,759 2,702 7,950 7,749
Investment securities and
other investment gains (losses), net .................. -- -- 497 (476)
------------ ------------ ------------ ------------
Total Noninterest Income .................................... 16,500 16,456 51,672 45,812
------------ ------------ ------------ ------------
Noninterest Expense:
Salaries and employee benefits ........................... 14,076 13,770 41,378 39,824
Net occupancy expense .................................... 1,433 1,332 4,140 3,900
Furniture and equipment expense .......................... 2,123 1,895 6,378 5,866
Depreciation - leased equipment .......................... 4,389 3,359 12,213 9,436
Supplies and communications .............................. 1,298 1,273 3,809 3,881
Business development and marketing expense ............... 885 1,329 2,714 3,113
Other expense ............................................ 2,511 2,835 6,512 8,074
------------ ------------ ------------ ------------
Total Noninterest Expense ................................... 26,715 25,793 77,144 74,094
------------ ------------ ------------ ------------
Income Before Income Taxes and Subsidiary Trust Distributions 14,793 14,057 42,627 40,738
Income taxes ................................................ 4,967 4,883 14,024 14,057
Distribution on preferred securities of
subsidiary trusts, net of income tax benefit .............. 600 561 1,786 1,666
------------ ------------ ------------ ------------
Net Income .................................................. $ 9,226 $ 8,613 $ 26,817 $ 25,015
============ ============ ============ ============
Other Comprehensive Income, Net of Tax:
Change in unrealized appreciation (depreciation) of
available-for-sale securities ........................... 1,998 (320) 2,853 (3,457)
------------ ------------ ------------ ------------
Total Comprehensive Income .................................. $ 11,224 $ 8,293 $ 29,670 $ 21,558
============ ============ ============ ============
Per Common Share: (1)
Basic Net Income Per Common Share ......................... $ 0.46 $ 0.44 $ 1.35 $ 1.26
============ ============ ============ ============
Diluted Net Income Per Common Share ....................... $ 0.46 $ 0.43 $ 1.34 $ 1.24
============ ============ ============ ============
Dividends ................................................. $ 0.090 $ 0.076 $ 0.261 $ 0.221
============ ============ ============ ============
Basic Weighted Average Common Shares Outstanding ............ 19,748,539 19,870,325 19,801,965 19,896,349
============ ============ ============ ============
Diluted Weighted Average Common Shares Outstanding .......... 19,949,587 20,183,451 20,021,683 20,225,420
============ ============ ============ ============
(1) The computation of per share data gives retroactive recognition to a 5% stock dividend declared on July 18, 2000.
The accompanying notes are a part of the consolidated financial statements.
</TABLE>
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands)
Nine Months Ended September 30
2000 1999
--------- ---------
Operating Activities:
Net income .................................... $ 26,817 $ 25,015
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ..................... 9,888 4,968
Depreciation of premises and equipment ........ 15,411 12,361
Amortization of investment security premiums
and accretion of discounts, net ............. 759 1,224
Amortization of mortgage servicing rights ..... 4,199 4,305
Deferred income taxes ......................... 2,042 193
Realized investment securities (gains) losses . (497) 476
Realized gains on securitized loans ........... (6,916) (4,117)
Increase in interest receivable ............... (4,628) (727)
Increase in interest payable .................. 12,255 1,057
Other ......................................... (7,876) 2,959
--------- ---------
Net Cash Provided by Operating Activities ....... 51,454 47,714
Investing Activities:
Proceeds from sales and maturities
of investment securities .................... 148,225 212,503
Purchases of investment securities ............ (132,056) (192,752)
Net (increase)decrease in short-term investments (19,837) 38,290
Loans sold or participated to others .......... 225,749 267,421
Increase in loans net of principal collections. (448,077) (346,356)
Net increase in equipment owned
under operating leases ...................... (14,448) (9,970)
Purchases of premises and equipment ........... (2,324) (3,163)
Increase in other assets ...................... (1,784) (6,109)
Other ......................................... (646) (1,124)
--------- ---------
Net Cash Used in Investing Activities ........... (245,198) (41,260)
Financing Activities:
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts ............... 40,423 (74,127)
Net increase in certificates of deposit ....... 278,866 9,290
Net (decrease) increase in short-term borrowings (92,067) 56,560
Proceeds from issuance of long-term debt ...... 255 862
Payments of long-term debt .................... (307) (2,237)
Acquisition of treasury stock ................. (4,601) (6,614)
Cash dividends ................................ (5,189) (4,427)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 217,380 (20,693)
Increase (Decrease) in Cash and Cash Equivalents 23,636 (14,239)
Cash and Cash Equivalents, Beginning of Period .. 101,911 132,514
--------- ---------
Cash and Cash Equivalents, End of Period ........ $ 125,547 $ 118,275
========= =========
The accompanying notes are a part of the consolidated financial statements.
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<PAGE>
Notes to the Consolidated Financial Statements
1. The unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. The information furnished
herein reflects all adjustments (all of which are normal and recurring in
nature) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods for which this report
is submitted. The 1999 1st Source Corporation Annual Report on Form 10-K
and quarterly reports on Form 10-Q for the quarters ended March 31, 2000,
and June 30, 2000 should be read in conjunction with these statements.
2. In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on the
intended use of the derivative and its resulting designation. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," which amends SFAS No. 133, deferring its effective date to fiscal
years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133," which amends certain
provisions of SFAS No. 133.
1st Source currently uses certain derivative contracts (interest rate swaps
and forward contracts) which will be subject to SFAS No. 133. Management is
currently in the process of assessing the impact that the adoption of SFAS
No. 133 will have on 1st Source's results of operations and its financial
position. Based on current information, it is not expected to have a
material impact on its financial statements. 1st Source will adopt SFAS
133, concurrently with SFAS 137 and 138, on January 1, 2001.
3. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities",
which replaces SFAS No. 125. This statement revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is
effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years
ending after December 15, 2000. This statement is not expected to have a
material effect on 1st Source's financial position or results of
operations.
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<PAGE>
PART I.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following management's discussion and analysis is presented to provide
information concerning the financial condition of 1st Source as of September 30,
2000, as compared to September 30, 1999 and December 31, 1999, and the results
of operations for the three and nine months ended September 30, 2000 and 1999.
This discussion and analysis should be read in conjunction with 1st
Source's consolidated condensed financial statements and the financial and
statistical data appearing elsewhere in this report and the 1999 1st Source
Corporation Annual Report on Form 10-K and the quarterly reports on Form 10-Q
for the quarters ended March 31, and June 30, 2000.
Except for historical information contained herein, the matters discussed
in this document, and other information contained in 1st Source's SEC filings,
may express "forward-looking statements." Those "forward-looking statements" may
involve risk and uncertainties, including statements concerning future events,
performance and assumptions and other statements that are other than statements
of historical facts. 1st Source wishes to caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made. Readers are advised that various factors--including, but not limited to,
changes in laws, regulations or generally accepted accounting principles; 1st
Source's competitive position within the markets served; increasing
consolidation within the banking industry; unforeseen changes in interest rates;
any unforeseen downturns in the local, regional or national economies--could
cause 1st Source's actual results or circumstances for future periods to differ
materially from those anticipated or projected.
1st Source does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of unanticipated events or
circumstances after the date of such statements.
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<PAGE>
FINANCIAL CONDITION
-------------------
1st Source's assets at September 30, 2000 were $3.13 billion, up 14.2% from
the same time last year. Total loans were up 16.1% and total deposits increased
15.8% over the comparable figures at the end of the third quarter of 1999.
Shareholders' equity was $260.8 million, up 12.7% from the $231.5 million one
year ago. As of September 30, 2000, the 1st Source equity-to-assets ratio was
8.3%, compared to 8.4% a year ago.
Non-performing assets at September 30, 2000, were $21,570,000 compared to
$15,355,000 at December 31, 1999, an increase of 40.48%. At September 30, 2000,
non-performing assets were 0.95% of net loans compared to 0.74% at December 31,
1999.
Loans are reported at the principal amount outstanding, net of unearned
income. Loans identified as held-for- sale are carried at the lower of cost or
market determined on an aggregate basis. Loans held-for-sale were $66.8 million
and $73.6 million at September 30, 2000 and 1999, respectively.
Included in Other Assets are capitalized mortagage servicing rights. The
costs of purchasing the rights to service mortgage loans originated by others
are deferred and amortized as reductions of mortgage servicing fee income over
the estimated servicing period in proportion to the estimated servicing income
to be received. SFAS No. 125 allows companies that intend to sell originated or
purchased loans and retain the related servicing rights, to allocate a portion
of the total costs of the loans to servicing rights, based on estimated fair
value. Fair value is estimated based on market prices, when available, or the
present value of future net servicing income, adjusted for such factors as
discount and prepayment rates. As of September 30, 2000 and 1999, the balance of
mortgage servicing rights was $20.4 million and $19.8 million, respectively.
CAPITAL RESOURCES
The banking regulators have established guidelines for leverage capital
requirements, expressed in terms of Tier 1 or core capital as a percentage of
average assets, to measure the soundness of a financial institution. These
guidelines require all banks to maintain a minimum leverage capital ratio of
4.00% for adequately capitalized banks and 5.00% for well-capitalized banks. 1st
Source's leverage capital ratio was 9.76% at September 30, 2000.
The Federal Reserve Board has established risk-based capital guidelines for
U.S. banking organizations. The guidelines established a conceptual framework
calling for risk weights to be assigned to on and off-balance sheet items in
arriving at risk-adjusted total assets, with the resulting ratio compared to a
minimum standard to determine whether a bank has adequate capital. The minimum
standard risk-based capital ratios effective in 2000 are 4.00% for adequately
capitalized banks and 6.00% for well-capitalized banks for Tier 1 risk-based
capital and 8.00% and 10.00%, respectively, for total risk-based capital. 1st
Source's Tier 1 risk-based capital ratio on September 30, 2000 was 11.70% and
the total risk-based capital ratio was 12.96%.
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<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset and liability management includes the management of interest rate
sensitivity and the maintenance of an adequate liquidity position. The purpose
of liquidity management is to match the sources and uses of funds to anticipated
customers' deposits and withdrawals, to anticipate borrowing requirements and to
provide for the cash flow needs of 1st Source. The purpose of interest rate
sensitivity management is to stabilize net interest income during periods of
changing interest rates.
Close attention is given to various interest rate sensitivity gaps and
interest rate spreads. Maturities of rate sensitive assets are carefully
maintained relative to the maturities of rate sensitive liabilities and interest
rate forecasts. At September 30, 2000, the consolidated statement of financial
condition was rate sensitive by $20,920,000 more liabilities than assets
scheduled to reprice within one year or 98.72%. Management adjusts the
composition of its assets and liabilities to manage the interest rate
sensitivity gap based upon its expectations of interest rate fluctuations.
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<PAGE>
RESULTS OF OPERATIONS
---------------------
NET INCOME
Net income for the three-month and nine-month periods ended September 30,
2000, was $9,226,000 and $26,817,000 respectively, compared to $8,613,000 and
$25,015,000 for the equivalent periods in 1999. The primary reasons for the
increase were an increase in net interest income and noninterest income. This
was offset by increases in the provision for loan losses and noninterest
expense.
Diluted net income per common share increased to $0.46 and $1.34,
respectively, for the three-month and nine- month periods ended September 30,
2000, from $0.43 and $1.24 in 1999. Return on average common shareholders'
equity was 14.41% for the nine months ended September 30, 2000, compared to
14.87% in 1999. The return on total average assets was 1.20% for the nine months
ended September 30, 2000, compared to 1.23% in 1999.
NET INTEREST INCOME
The taxable equivalent net interest income for the three-month period ended
September 30, 2000, was $27,087,000, an increase of 2.01% over the same period
in 1999, resulting in a net yield of 3.81% compared to 4.24% in 1999. The fully
taxable equivalent net interest income for the nine-month period ended September
30, 2000, was $80,404,000, an increase of 4.80% over 1999, resulting in a net
yield of 3.94% compared to 4.18% in 1999. The net yield on earning assets has
declined in 2000 due to more rapid increases in funding costs over increases in
earning asset yields.
Total average earning assets increased 13.87% and 11.01%, respectively, for
the three-month and nine-month periods ended September 30, 2000, over the
comparative periods in 1999. Total average investment securities increased 6.52%
and 5.38%, respectively for the three-month and nine-month periods over one year
ago primarily due to an increase of investments in U.S. Government Securities.
Average loans increased by 14.99% and 12.50% for the three-month and nine-month
periods, compared to the same periods in 1999, due to growth in loan volume in
commercial, consumer and commercial loans secured by transportation and
construction equipment. The taxable equivalent yields on total average earning
assets were 8.71% and 8.23% for the three-month periods ended September 30,
2000, and 1999, and 8.57% and 8.24% for the nine-month periods ended September
30, 2000, and 1999, respectively.
Average deposits increased 14.66% and 9.30%, respectively, for the
three-month and nine-month periods over the same periods from 1999. The cost
rate on average interest-bearing funds was 5.63% and 4.63% for the three- months
ended September 30, 2000, and 1999, and 5.31% and 4.70% for the nine-month
periods ended September 30, 2000 and 1999. The majority of the growth in
deposits from last year has occurred in NOW accounts.
The following table sets forth consolidated information regarding average
balances and rates.
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<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Dollars in thousands)
Three Months Ended September 30
------------------------------------
2000 1999
--------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable ................. $ 363,281 $ 5,696 6.24% $ 337,702 $ 4,763 5.60%
Tax exempt (1)........... 170,147 2,752 6.44% 163,064 2,864 6.97%
Net loans (2)(3)........... 2,275,988 53,187 9.30% 1,979,307 43,867 8.79%
Other investments ......... 17,797 281 6.28% 2,666 29 4.32%
---------- -------- ----- ---------- -------- -----
Total Earning Assets 2,827,213 61,916 8.71% 2,482,739 51,523 8.23%
Cash and due from banks ... 95,995 112,985
Reserve for loan losses ... (42,210) (38,951)
Other assets .............. 219,669 191,124
---------- ----------
Total ..................... $3,100,667 $2,747,897
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $2,111,164 $29,243 5.51% $1,804,569 $20,483 4.50%
Short-term borrowings ... 339,863 5,361 6.28% 324,757 4,273 5.22%
Long-term debt .......... 12,167 225 7.35% 11,835 215 7.22%
---------- ------- ----- ---------- ------- -----
Total Interest Bearing
Liabilities ............. 2,463,194 34,829 5.63% 2,141,161 24,971 4.63%
Noninterest bearing deposits 287,252 287,210
Other liabilities ....... 94,328 90,858
Shareholders' equity .... 255,893 228,668
---------- ----------
Total ..................... $3,100,667 $2,747,897
========== ==========
------- -------
Net Interest Income ....... $27,087 $26,552
======= =======
Net Yield on Earning Assets on a Taxable ----- -----
Equivalent Basis ........ 3.81% 4.24%
===== =====
Nine Months Ended September 30
-------------------------------------
2000 1999
--------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
ASSETS:
Investment securities:
Taxable ................. $ 362,253 $16,149 5.95% $ 343,140 $14,713 5.73%
Tax exempt (1)........... 168,569 8,328 6.60% 160,583 8,474 7.06%
Net loans (2)(3)........... 2,180,714 149,662 9.17% 1,938,355 127,540 8.80%
Other investments ......... 11,823 522 5.90% 11,097 374 4.51%
---------- ------- ----- ---------- ------- -----
Total Earning Assets ...... 2,723,359 174,661 8.57% 2,453,175 151,101 8.24%
Cash and due from banks ... 97,861 110,980
Reserve for loan losses ... (40,855) (38,759)
Other assets .............. 213,468 184,826
---------- ----------
Total ..................... $2,993,833 $2,710,222
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $2,026,156 $78,928 5.20% $1,833,007 $62,954 4.59%
Short-term borrowings ... 330,879 14,659 5.92% 270,800 10,756 5.31%
Long-term debt .......... 12,224 670 7.32% 12,637 670 7.09%
---------- ------- ----- ---------- ------- -----
Total Interest Bearing
Liabilities ............. 2,369,259 94,257 5.31% 2,116,444 74,380 4.70%
Noninterest bearing deposits 283,536 280,125
Other liabilities ....... 92,528 88,778
Shareholders' equity .... 248,510 224,875
---------- ----------
Total ..................... $2,993,833 $2,710,222
========== ==========
------- -------
Net Interest Income ....... $80,404 $76,721
======= =======
Net Yield on Earning Assets on a Taxable ----- -----
Equivalent Basis ........ 3.94% 4.18%
===== =====
(1) Interest income includes the effects of taxable equivalent adjustments,
using a 40.525% rate for 2000 and 1999. Tax equivalent adjustments for the
three-month periods were $733 in 2000 and $871 in 1999 and for the
nine-month periods were $2,314 in 2000 and $2,586 in 1999.
(2) Loan income includes fees on loans for the three-month periods of $1,299 in
2000 and $1,502 in 1999 and for the nine-month periods of $4,504 in 2000
and $4,302 in 1999. Loan income also includes the effects of taxable
equivalent adjustments, using a 40.525% rate for 2000 and 1999. The tax
equivalent adjustments for the three-month periods were $54 in 2000 and $55
in 1999 and for the nine-month periods were $104 in 1999 and $148 in 1999.
(3) For purposes of this computation, non-accruing loans are included in the
daily average loan amounts outstanding.
</TABLE>
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<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three-month period ended September
30, 2000, and 1999, was $1,292,000 and $2,232,000, respectively, and was
$9,888,000 and $4,968,000 for the nine-month periods ended September 30, 2000
and 1999. Net Charge-offs of $247,000 have been recorded for the three-month
period ended September 30, 2000, compared to $629,000 of Net Charge-offs for the
same period in 1999. Year-to-date Net Charge-offs of $5,198,000 have been
recorded in 2000, compared to Net Charge-offs of $994,000 through September
1999. A summary of loan loss experience during the three and nine months ended
September 30, 2000 and 1999 is provided below.
<TABLE>
<CAPTION>
Summary of Allowance for Loan Losses
------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Allowance for loan losses - beginning balance $ 42,205 $ 39,403 $ 40,210 $ 38,629
Charge-offs 731 762 5,994 1,457
Recoveries 484 133 796 463
--------- --------- --------- ---------
Net charge-offs 247 629 5,198 994
Provision for loan losses 1,292 2,232 9,888 4,968
Recaptured reserve due to loan securitizations (706) (1,192) (2,356) (2,789)
--------- --------- --------- ---------
Allowance for loan losses - ending balance $ 42,544 $ 39,814 $ 42,544 $ 39,814
========= ========= ========= =========
Loans outstanding at end of period 2,272,574 1,956,696 2,272,574 1,956,696
Average loans outstanding during period 2,275,988 1,979,307 2,180,714 1,938,355
Allowance for loan losses as a percentage of
loans outstanding at end of period 1.87% 2.03% 1.87% 2.03%
Ratio of net charge-offs during period to
average loans outstanding 0.04% 0.13% 0.32% 0.07%
</TABLE>
The reserve for loan losses was $42,544,000 or 1.87% of net loans at
September 30, 2000, compared to $40,210,000 or 1.95% of net loans at
December 31, 1999. It is management's opinion that the reserve for loan losses
is adequate to absorb losses inherent in the loan portfolio as of September 30,
2000.
NONINTEREST INCOME
Noninterest income for the three-month periods ended September 30, 2000,
and 1999 was $16,500,000 and $16,456,000, respectively, and for the nine-month
periods was $51,672,000 in 2000 and $45,812,000 in 1999. For the nine-month
period, trust fees increased 6.23%, service charges on deposit accounts
increased 12.94%, loan servicing and sale income increased 7.28%, equipment
rental income increased 20.76% and other income increased 2.59%. Servicing and
sale income has increased for the nine-month period due to increased loan
securitization activity and an increase in the sale and servicing of mortgage
loans during the first six months of 2000. The increase in equipment rental
income was primarily due to growth in operating leases. Investment Security and
other net gains for the nine-month period ended September 30, 2000, were
$497,000 compared to net losses of $476,000 in 1999. The net gains and losses
for both years were primarily attributed to certain partnership and venture
capital investments.
- 12 -
<PAGE>
NONINTEREST EXPENSE
Noninterest expense for the three-month period ended September 30, 2000,
was $26,715,000, an increase of 3.57% over the same period in 1999 and was
$77,144,000 for the nine-month period ended September 30, 2000, an increase of
4.12% over 1999. For the nine-month period ended September 30, 2000, salaries
and employee benefits increased 3.90%, net occupancy expense increased 6.15%,
furniture and equipment expense increased 8.73%, depreciation on leased
equipment increased 29.43%, supplies and communications expense decreased 1.86%,
business development and marketing expense decreased 12.82%, and miscellaneous
other expenses decreased 19.35% over the same period in 1999. The increase in
depreciation of leased equipment is due to a significant volume increase from
the prior year. The miscellaneous other expense decrease from one year ago is
attributed primarily to Year 2000 consulting expenses incurred in 1999.
INCOME TAXES
The provision for income taxes for the three-month and nine-month periods
ended September 30, 2000, was $4,967,000 and $14,024,000, respectively, compared
to $4,883,000 and $14,057,000 for the comparable periods in 1999. The provision
for income taxes for the nine months ended September 30, 2000, and 1999, is at a
rate which management believes approximates the effective rate for the year.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk exposures that affect
the "Quantitative and Qualitative Disclosures" presented in 1st Source's annual
report on Form 10-K for the year ended December 31, 1999. See the discussion of
interest rate sensitivity beginning on page 9.
- 13 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1st Source Corporation
-------------------
DATE 11/13/00 /s/ Christopher J. Murphy III
---------- ----------------------------------------
(Signature)
Christopher J. Murphy III
Chairman of the Board, President and CEO
DATE 11/13/00 /s/ Larry E. Lentych
---------- ----------------------------------------
(Signature)
Larry E. Lentych
Treasurer and Chief Financial Officer
- 15 -
<PAGE>
